American Rice, Inc. v. Producers Rice Mill, Inc.

• Decision Date: 22 February 2008
• Docket Number: No. 06-20645.,06-20645.
• Parties: AMERICAN RICE, INC., Plaintiff-Appellant, Cross-Appellee, v. PRODUCERS RICE MILL, INC., Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

518 F.3d 321

AMERICAN RICE, INC., Plaintiff-Appellant, Cross-Appellee, v. PRODUCERS RICE MILL, INC., Defendant-Appellee, Cross-Appellant.

No. 06-20645.

United States Court of Appeals, Fifth Circuit.

February 22, 2008.

John M. Mings (argued), Michael S. McCoy, Fulbright & Jaworski, Houston, TX, for American Rice, Inc.

Thomas Louis Casagrande (argued), Rodney K. Caldwell, Richard Loren Stanley, Howrey LLP, Houston, TX, for Producers Rice Mill.

Appeal from the United States District Court for the Southern District of Texas.

Before HIGGINBOTHAM, DAVIS and SMITH, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

In this Lanham Act/breach of contract action, the district court entered judgment for Plaintiff-Appellant Cross-Appellee, American Rice, Inc. ("ARI") against Defendant-Appellee Cross-Appellant Producers Rice Mill, Inc. ("PRMI"). PRMI challenges that judgment on multiple grounds, and ARI complains of the damage award. We affirm the district court's liability findings, vacate the attorney's fee award, and remand for entry of judgment consistent with this opinion on the damage award.

I. Facts and Prior Proceedings

For thirty-five years, ARI, a Delaware corporation, has continuously sold parboiled, American long-grain rice in Saudi Arabia under ARI's "Abu Bint" brand name. During this time, ARI has spent $25 million to $30 million to advertise and promote this brand with a design of a girl on the label ("Girl Design"). Because of the goodwill it has established in Saudi Arabia, ARI's rice sells at a premium over competitors' rice. ARI currently sells approximately 120,000 to 150,000 tons of rice in Saudi Arabia per year. Parboiled rice constitutes approximately ten to thirteen percent of the Saudi rice market, and ARI has approximately sixty-five percent of the Saudi parboiled market. ARI's Girl Design on its packaging is the key feature of its brand. Many consumers in Saudi Arabia identify ARI's "Abu Bint" rice by this Girl Design and ask for it as "girl brand" rice. ARI owns U.S. Trademark Registration No. 882,997, issued December 23, 1969, for the Girl Design, and this registration was most recently renewed on August 4, 2000.

PRMI is also a seller of parboiled, American long-grain rice in Saudi Arabia. PRMI is an Arkansas corporation that operates as a farmer-owned cooperative. A number of farmer members provide rice which the corporation then processes and sells. Any profit PRMI derives from rice sales flows through to the individual farmer members. PRMI's rice bags depict a girl with a hat ("Girl with a Hat Design"), and it has used this image since 1985. Until 2005, its bags also featured the words "Al Falaha," which means "farmer's girl" in Arabic, and this was changed to "Bothaina," a girl's name, in 2005. Additionally, PRMI includes on its bags its registered script mark, "Par Excellence," alongside the Girl with a Hat Design. PRMI's Girl with a Hat Design has not been registered as a trademark. PRMI has sold only 1,000 to 3,000 tons of rice annually in Saudi Arabia since 1985 in bags depicting this Girl with a Hat Design.

In early 2005, PRMI made plans to sell rice under a private label brand as requested by its Saudi wholesale customers and, at the recommendation of these customers, it incorporated a different design with a girl on it ("Private Label Girl Design"). Before PRMI shipped any of the rice bearing the Private Label Girl Design, ARI sued PRMI, alleging that this design was too similar to ARI's Girl Design. On April 21, 2005, ARI and PRMI settled this lawsuit. In the April 2005 Settlement Agreement, PRMI agreed not to use the proposed Private Label Girl Design or any design confusingly similar to ARI's Girl Design. PRMI then proceeded to use its Girl with a Hat Design (which it claims to have used continuously since 1985) on its private label rice.

At the time of the settlement, ARI alleges it had no knowledge that PRMI had been using the Girl with a Hat Design for the past 20 years. ARI claims to have first learned of PRMI's Girl with a Hat Design, an allegedly infringing use, in September 2005. ARI brought this lawsuit in September 2005 for both infringement under the Lanham Act¹ of its Registered Trademark No. 882,997 and for breach of the April 2005 Settlement Agreement, alleging that the Girl with a Hat Design both created a likelihood of confusion under the Lanham Act and was confusingly similar to its Girl Design in violation of the Settlement Agreement.

The district court consolidated a preliminary injunction hearing with a bench trial on the merits. The court found trademark infringement under the Lanham Act as well as a breach of the Settlement Agreement. The court originally issued Findings of Fact and Conclusions of Law and an Order on January 10, 2006, which awarded ARI a permanent injunction (based both on the Lanham Act violation and the breach of the Settlement Agreement), disgorgement of PRMI's profits from 2005 (as measured by PRMI's sales for that year) in the amount of $1,256,635.00 for violation of the Lanham Act, reasonable attorney's fees under Texas law for breach of the Settlement Agreement,² as well as interest and costs. On July 14, 2006, the district court issued Amended Findings of Fact and Conclusions of Law and an Order, awarding only a permanent injunction, reasonable attorney's fees of $383,986.10 for breach of the settlement agreement, and interest. This Amended Order vacated the profits award of $1,256,635.00, finding instead that PRMI only had $227.10 in profits in 2005 based on PRMI's tax return, which the court determined was the best measure of PRMI's profits. The court further determined that under an "election of remedies" theory, ARI was only entitled to recover under one of the alleged theories — the Lanham Act or breach of the settlement agreement — and, as such, the court awarded only the attorney's fees and injunction available under Texas law for breach of the Settlement Agreement since it was the greater recovery of the two. Additionally, the court determined that PRMI had not established its affirmative defense of laches. ARI timely appealed, and PRMI timely cross-appealed.

II. PRMI's Cross-Appeal

A.

In its cross-appeal, PRMI argues first that the district court improperly exercised extraterritorial jurisdiction because the allegedly infringing conduct took place in Saudi Arabia. This Court reviews a district court's assumption of subject matter jurisdiction de novo.³

This Court's decision in American Rice, Inc. v. Arkansas Rice Growers Cooperative Ass'n⁴ controls this issue. In that case, ARI, the plaintiff in this case, sued Arkansas Rice Growers Cooperative Association ("Riceland") for trademark infringement of its Girl Design which took place in Saudi Arabia.⁵ In determining whether the district court's exercise of extraterritorial jurisdiction was proper, we explained that the appropriate factors to consider were the sufficiency of the contacts in this country and the interests of the United States, including "the citizenship of the defendant, the effect on United States commerce, and the existence of a conflict with foreign law."⁶ We made it clear that the absence of any of these factors is not dispositive, nor are these factors the exclusive factors to be considered.⁷

In American Rice, we focused on the fact that Riceland was an Arkansas corporation engaged in both interstate and foreign commerce and that the defendant's processing, packaging, transportation, and distribution activities took place in the United States, notwithstanding the fact that the "consummation of the unlawful activity occurred on foreign soil."⁸ Where steps were taken in the United States which were "essential steps in the course of business consummated abroad," we concluded that the illegality of the business in Saudi Arabia tainted the acts that took place on American soil.⁹

Applying the first two American Rice factors, PRMI is an American corporation based in Stuttgart, Arkansas, and PRMI's sales in Saudi Arabia have an effect on interstate commerce based on the processing, packaging, transportation, and distribution activities which take place in the United States before the rice reaches Saudi Arabia. These facts are nearly identical to the ones found sufficient for exercise of extraterritorial jurisdiction over rice sales in Saudi Arabia in American Rice.¹⁰ In addition to the contacts PRMI has with the United States mentioned above, PRMI also makes payments to its member farmers in the United States both before and after shipment of the rice to Saudi Arabia.

In American Rice, we left open the possibility, however, that where it would be an affront to Saudi sovereignty to exercise jurisdiction, such jurisdiction should not be exercised.¹¹ However, "[a]bsent a determination by a Saudi court that [defendant] has a legal right to use its marks, and that those marks do not infringe ARI's Abu Bint mark, we are unable to conclude that it would be an affront to Saudi sovereignty or law if we affirm the district court . . . ."¹² In this case, the record does not reflect a finding by a Saudi court that PRMI had a legal right of use of the Girl with a Hat Design, nor do we have a finding by a Saudi court that the Girl with a Hat Design does not infringe ARI's Girl Design.¹³ Therefore, we conclude that the district court properly exercised jurisdiction in this case.

B.

PRMI asserts next that ARI did not have a protectable right in the Girl Design mark asserted and that the likelihood of confusion finding by the district court was clearly erroneous. Our task is to determine from the record whether the district court's findings were clearly erroneous. "Likelihood of confusion is a question of fact reviewed for clear error."¹⁴

To recover on a claim of trademark infringement, a plaintiff must first show that the mark is legally protectable and must then establish infringement by showing a likelihood of confusion.¹⁵ To be protectable, a mark must be...